Calculating Compound Interest: Yearly Compounding Explained

What is the initial amount invested in the example discussed?

• $1,000

• $2,000

• $2,500

• $3,000

How much interest is earned in the first year on a $2,000 investment at 5% interest?

• $100

• $110

• $115

• $105

What is the total amount accumulated after two years with yearly compounding?

• $2,315.25

• $2,205

• $2,100

• $2,400

What is the total accumulated amount after three years?

• $2,500

• $2,400

• $2,315.25

• $2,205

What does 'M' stand for in the compound interest formula?

• Number of compounding periods per year

• Multiplier of interest

• Money invested

• Monthly interest rate

If the interest is compounded monthly, what would 'M' be?

• 1

• 365

• 12

• 52

Using the formula, what is the accumulated amount after three years for a $2,000 investment at 5% interest compounded yearly?

• $2,205

• $2,315.25

• $2,500

• $2,400

What is the significance of the number of compounding periods in the calculation of compound interest?

• It specifies the interest rate

• It determines the total investment period

• It affects the frequency of interest addition

• It indicates the bank's policy

What would be the effect of increasing the number of compounding periods on the accumulated amount?

• Decrease the amount

• Increase the amount

• No effect

• Reset the principal

How does daily compounding compare to yearly compounding in terms of the accumulated amount?

• Unpredictable

• More than yearly

• Less than yearly

• Equal to yearly